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Capital Gains Tax

Date

2.2 Tax expenditures (continued)

E. Capital Gains Tax

The presentation of capital gains tax expenditures

There are a number of capital gains tax (CGT) concessions available to taxpayers, including the 50 per cent discount available to resident individual taxpayers and trusts. The discount component of CGT concessions for individuals and trusts (except that relating to main residences) is reported as part of the tax expenditure Capital gains tax discount for individuals and trusts (E16). The notional discount component relating to the CGT exemption for main residences is reported separately at E6 given its size.

To avoid double counting, the estimates shown for other capital gains tax expenditures are the estimate of the concession in excess of the discount.

The CGT benchmark comprises:

  • taxation of gains on a realisation basis (that is, at the time an asset is disposed of) rather than on accrual;
  • a tax base of nominal gains or losses from the realisation of property where the realisation is not an aspect of the carrying on of a business; and
  • the limitation of Australian taxation of the capital gains of foreign residents to gains on the direct or indirect disposal of interests in Australian land (and similar assets such as mining rights) and branch office assets.
E1 Capital gains tax exemption for valour or brave conduct decorations
Defence ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
.. .. .. .. .. .. .. ..
Tax expenditure type: Exemption 2012 TES code: E1
Estimate Reliability: Low    
Commencement date: 1985 Expiry date:  
Legislative reference: Paragraph 118-5(b) of the Income Tax Assessment Act 1997

Capital gains or losses arising from the disposal of a decoration awarded for valour or brave conduct are exempt from capital gains tax. This exemption is available unless the owner of the decoration had paid money or given any other property for it.

E2 Capital gains tax roll-over for membership interests in medical defence organisations
Health ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Deferral 2012 TES code: E2
Estimate Reliability: Not Applicable * Category 1+
Commencement date: 2007 Expiry date:  
Legislative reference: Subdivision 124-P of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available for capital gains arising from the exchange of a membership interest in a medical defence organisation for a similar interest in another medical defence organisation where both organisations are companies limited by guarantee and subject to certain other conditions. The roll-over allows a member who exchanges their membership interest for the replacement interest to defer a capital gains tax liability arising from the exchange until the ultimate disposal of the replacement membership interest.

E3 Capital gains tax exemptions for special disability trusts
Social security and welfare ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
- * * * * * * *
Tax expenditure type: Exemption 2012 TES code: E3
Estimate Reliability: Not Applicable * Category 1+
Commencement date: 1 July 2006 Expiry date:  
Legislative reference: Sections 118-85 and 118-215 to 118-230 of the Income Tax Assessment Act 1997

The transfer by a taxpayer of an asset to a special disability trust (SDT) for no consideration is exempt from capital gains tax (CGT). A trustee of an SDT is also eligible for the CGT main residence exemption to the extent the principal beneficiary uses the dwelling as a home.

E4 Capital gains tax concessions for conservation covenants
Housing and community amenities ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
.. .. .. .. .. .. .. ..
Tax expenditure type: Exemption 2012 TES code: E4
Estimate Reliability: Low    
Commencement date: 15 June 2000 Expiry date:  
Legislative reference: Section 104-47 of the Income Tax Assessment Act 1997

For capital gains tax purposes, perpetual conservation covenants are treated as a part disposal of land, rather than the creation of a right. This treatment results in a reduced capital gain because a portion of the cost base of the land is taken into account. Previously the capital gain equalled the amount received for the covenant less incidental costs.

Landowners can also benefit from any capital gains tax concession or exemption that may apply to t
he capital gain. For example, a capital gain from a covenant granted in respect of land owned before 20 September 1985 is exempt. In addition, the capital gains tax discount may now apply if the land has been owned for at least 12 months.

E5 Capital gains tax main residence exemption
Housing and community amenities ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
18,000 16,000 14,000 14,000 13,500 14,000 14,000 14,500
Tax expenditure type: Exemption 2012 TES code: E5
Estimate Reliability: Low    
Commencement date: 1985 Expiry date:  
Legislative reference: Subdivision 118-B of the Income Tax Assessment Act 1997

Capital gains or losses on the disposal of an individual’s main residence and up to two hectares of adjacent land are exempt from capital gains tax, to the extent the dwelling is used as a home.

  • A taxpayer is entitled to treat a dwelling as their main residence from the time they acquire it until the time when they first occupy it provided they occupy it as soon as practicable.
  • A taxpayer is entitled to acquire a dwelling that is to become their main residence, whilst still owning an existing dwelling and treat both dwellings as their main residence for up to six months or until their ownership of the existing dwelling ends, whichever occurs first.
  • A taxpayer is entitled to treat a block of land as their main residence, if the land was acquired for the purposes of building a dwelling, the dwelling is completed within four years of acquiring the land (or a later time allowed by the Commissioner), the taxpayer moves into the dwelling as soon as practicable and the dwelling continues to be their main residence for at least three months.

See tax expenditure E6 Capital gains tax main residence exemption — discount component for the 50 per cent concession component of the main residence exemption.

E6 Capital gains tax main residence exemption — discount component
Housing and community amenities ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
22,000 20,500 17,500 18,000 16,500 17,500 17,500 17,500
Tax expenditure type: Exemption 2012 TES code: E6
Estimate Reliability: Low    
Commencement date: 1999 Expiry date:  
Legislative reference: Division 115 of the Income Tax Assessment Act 1997

Capital gains or losses on the disposal of an individual’s main residence and up to two hectares of adjacent land are exempt from capital gains tax, to the extent the dwelling is used as a home. Disposals of other assets by individuals or trusts receive a capital gains tax exemption applying to 50 per cent of any nominal gain where the asset has been owned for at least 12 months.

The capital gains tax treatment of the main residence effectively provides a 100 per cent exemption. Conceptually, this can be split into a component reflecting the 50 per cent discount provided to disposals of non-main residence assets and a ‘top up’ component that brings the concession up to 100 per cent.

The remainder of the value of the CGT main residence exemption, representing the value of the concession relative to the normal CGT rules, is reported in tax expenditure E5 Capital gains tax main residence exemption. Tax expenditure E16 Capital gains tax discount for individuals and trusts provides further detail on the 50 per cent concession applying to other assets.

E7 Other extensions to the capital gains tax main residence exemption
Housing and community amenities ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Exemption 2012 TES code: E7
Estimate Reliability: Not Applicable * Category 3+
Commencement date: 1985 and 1996 Expiry date:  
Legislative reference: Sections 118-145, 118-195 and 118-200 of the Income Tax Assessment Act 1997

A taxpayer’s dwelling may continue to be treated as their main residence even if it ceases to be their main residence for up to six years if the dwelling is used to produce assessable income (the six-year rule); or indefinitely, if the dwelling is not used to produce assessable income. This is provided that no other dwelling is treated as the taxpayer’s main residence during the period of absence.

In addition, from 20 August 1996, a taxpayer who receives a dwelling as beneficiary of a deceased estate, or who owns the dwelling as the trustee of a deceased estate, may be able to disregard a capital gain or capital loss if certain conditions are met.

E8 Philanthropy — capital gains tax exemption for the disposal of assets under the Cultural Gifts Program
Recreation and culture ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Exemption 2012 TES code: E9
Estimate Reliability: Not Applicable * Category 1+
Commencement date: 1999 Expiry date:  
Legislative reference: Subsection 118-60(2) of the Income Tax Assessment Act 1997

Capital gains or capital losses arising from gifts made under the Cultural Gifts program are exempt from capital gains tax. The Cultural Gifts program, which does not apply to testamentary gifts, encourages donations of significant cultural items from private collections to public art galleries, museums and libraries by offering tax benefits to the donor.

E9 Capital gains tax roll-over for worker entitlement funds
Other economic affairs — Total labour and employment affairs ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Deferral 2012 TES code: E10
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 2003 Expiry date:  
Legislative reference: Subdivision 126-C of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available for a fund that amends or replaces its trust deed in order to become an approved worker entitlement fund for fringe benefits tax purposes.

E10 Capital gains tax — demutualisation of mutual entities
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
2 1 1 2 2 3 5 7
Tax expenditure type: Exemption 2012 TES code: E11
Estimate Reliability: Low    
Commencement date: 1995 (mutual entities); 2007 (health insurers); 2008 (friendly societies) Expiry date:  
Legislative reference: Division 9AA and Schedule 2H of the Income Tax Assessment Act 1936
Division 315 and 316 of the Income Tax Assessment Act 1997

Capital gains and capital losses arising under the demutualisation of a mutual entity, including a life insurer, general insurer or health insurer are disregarded for members and/or policyholders that receive shares in the demutualised entity.

In addition:

  • members and policyholders of a demutualising life insurer receive a cost base for their shares based on the embedded value of the life insurer;
  • members and policyholders of a demutualising general insurer receive a cost base for their shares based on the net tangible assets value of the general insurer;
  • policyholders of a demutualising private health insurer receive a cost base for their shares based on the market value of the private health insurer; and
  • policyholders and members of a demutualising friendly society that is a life insurer and/or a private health insurer receive a cost base for their shares that is based on the market value of the private health insurance business (if any) and the embedded value of any other businesses of the friendly society.
E11 Capital gains tax — indexation of cost base
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Reduction in taxable value 2012 TES code: E13
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 1985 Expiry date:  
Legislative reference: Division 114 and Section 110-36 of the Income Tax Assessment Act 1997

For assets acquired at or before 11:45 am EST on 21 September 1999, taxpayers may choose to calculate the capital gain on the asset by reference to its indexed cost base. Taxpayers that choose to use the indexed cost base cannot access the CGT discount. The indexed cost base for these assets was frozen as at 30 September 1999.

E12 Capital gains tax — roll-overs for complying superannuation funds in certain circumstances
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Deferral 2012 TES code: E14
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 1994 (ADFs); 2008 (merging funds) and 2013 (MySuper mandatory transfers) Expiry date: 2017 (merging funds and MySuper mandatory transfers)
Legislative reference: Subdivision 126-C (trust deeds), Division 310 (merging funds) of the Income Tax Assessment Act 1997; Division 311 of the Income Tax Assessment Act 1997 (MySuper mandatory transfers)

A roll-over is available where a co
mplying superannuation fund or a complying Approved Deposit Fund amends or replaces its trust deed.

From 24 December 2008 to 2 July 2017, complying superannuation funds that merge are provided with loss relief and an asset roll-over. Loss relief and an asset roll-over will also be provided between 1 July 2013 to 1 July 2017 for mandatory transfers of default members’ balances and relevant assets to a MySuper product in another complying superannuation fund.

E13 Capital gains tax — roll-overs not otherwise recognised
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Deferral 2012 TES code: E15
Estimate Reliability: Not Applicable * Category NA
Commencement date: Various Expiry date:  
Legislative reference: Division 122, 124, 126 of the Income Tax Assessment Act 1997 and other CGT roll-overs not yet legislated

This tax expenditure encompasses other CGT roll-overs not specifically covered in existing CGT roll-over tax expenditures. For example, the crown lease roll-over in Subdivision 124-J, the roll-over for the disposal of assets by a trust to a company provided in Subdivision 124-N, and the roll-overs facilitating a change to a company structure in Division 122.

E14 Capital gains tax concession for non-portfolio interests in foreign companies with active businesses
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * -
Tax expenditure type: Reduction in taxable value 2012 TES code: E20
Estimate Reliability: Not Applicable * Category 3+
Commencement date: 1 April 2004 Expiry date:  
Legislative reference: Subdivision 768-G of the Income Tax Assessment Act 1997

Capital gains and losses by Australian companies and controlled foreign companies arising from certain capital gains tax events related to non-portfolio interests in foreign companies with active business assets are reduced.

E15 Capital gains tax deferral of liability when taxpayer dies
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Deferral 2012 TES code: E16
Estimate Reliability: Not Applicable * Category 3+
Commencement date: 1985 Expiry date:  
Legislative reference: Division 128 of the Income Tax Assessment Act 1997

Generally, there is no capital gains tax taxing point when a taxpayer dies. Recognition of the gains or losses accruing during the life of the deceased is deferred for post-CGT assets until the person inheriting the asset later disposes of it. An exception applies if the capital gains tax asset passes to an exempt entity, the trustee of a complying superannuation entity, or a non-resident of Australia.

E16 Capital gains tax discount for individuals and trusts
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
4,330 4,480 4,910 3,990 4,300 5,410 6,970 7,640
Tax expenditure type: Exemption 2012 TES code: E17
Estimate Reliability: Medium    
Commencement date: 1999; 2012 (removal for non-residents) Expiry date:  
Legislative reference: Division 115 of the Income Tax Assessment Act 1997

A capital gains tax exemption applies to 50 per cent of any nominal capital gain made by a resident individual or trust where the asset has been owned for at least 12 months. For assets acquired before 21 September 1999 and held for at least 12 months, an individual or trust may instead choose to be taxed on the difference between the disposal price and the indexed cost base frozen as at 30 September 1999.

The CGT discount is not available on capital gains accrued after 8 May 2012 and while the taxpayer is a non-resident.

This item includes the CGT discount component of the value of all capital gains tax expenditures except the CGT discount associated with the main residence exemption, which is reported separately in tax expenditure E6 Capital gains tax main residence exemption — discount component.

E17 Capital gains tax discount for investors in listed investment companies
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016&#820
9;17
40 25 35 35 45 50 60 70
Tax expenditure type: Deduction 2012 TES code: E18
Estimate Reliability: Low    
Commencement date: 2001 Expiry date:  
Legislative reference: Subdivision 115-D of the Income Tax Assessment Act 1997

The shareholders of a listed investment company (LIC) who receive dividends that represent a distribution of capital gains made by that company are entitled to a deduction in respect of those dividends equivalent to the capital gains tax discount they would have received if they had realised the capital gains themselves. This concession applies in respect of gains realised by a LIC on or after 1 July 2001, provided the assets have been held by the LIC for at least 12 months.

E18 Capital gains tax exemption for assets acquired before 20 September 1985
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Exemption 2012 TES code: E19
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 1985 Expiry date:  
Legislative reference: Division 104 of the Income Tax Assessment Act 1997

Capital gains or losses on assets acquired before 20 September 1985 (the commencement date of the capital gains tax regime) are generally exempt from capital gains tax.

E19 Capital gains tax roll-over and exemption and related taxation relief for demergers
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Exemption, Deferral 2012 TES code: E21
Estimate Reliability: Not Applicable * Category 3+
Commencement date: 2002 Expiry date:  
Legislative reference: Division 125 of the Income Tax Assessment Act 1997
Subsection 44(4) of the Income Tax Assessment Act 1936

Capital gains tax (CGT) concessions are available to defer or exempt the CGT payable in respect of the restructuring of a corporate or trust group, where the group is split into two or more entities or groups (that is, by demerging). There are three elements to demerger relief:

  • CGT roll-over at the shareholder or trust membership interest level for interests such as shares that are exchanged during the demerger process;
  • a CGT exemption for certain capital gains and losses at the entity level; and
  • an income tax exemption for certain ‘demerger dividends’.

These concessions are available to demergers that occur on or after 1 July 2002.

From 11 May 2010, demerger relief also applies to corporate groups where the head entity is a corporation sole or a complying superannuation entity.

E20 Capital gains tax roll-over for assets compulsorily acquired, lost or destroyed
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Deferral 2012 TES code: E22
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 1985 Expiry date:  
Legislative reference: Subdivision 124-B of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available for capital gains where an asset is compulsorily acquired, lost or destroyed and the taxpayer purchases a replacement asset. In recognition that the disposal was not initiated by the taxpayer, the capital gains liability is deferred from the time of the compulsory acquisition, loss or destruction until the ultimate disposal of the replacement asset.

This roll-over provides the same treatment for a compulsory acquisition whether by a private or public acquirer, and greater flexibility for landowners whose land is compulsorily subject to a mining lease.

E21 Capital gains tax roll-over for financial service providers on transition to the Financial Services Reform regime
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* - - - - - - -
Tax expenditure type: Deferral 2012 TES code: E23
Estimate Reliability: Not Applicable * Category 1-
Commencement date: 2002 Expiry date: 2004
Legislative reference: Subdivision 124-O of the Income Tax Assessment Act 1997

An automatic capital gains tax (CGT) roll-over was provided to eligible financial service providers on transition to the Financial Services Reform regime, with effect from 11 March 2002 until 10 March 2004. Financial service providers were provided the roll-over when, during the Financial Services Reform transitional period:

  • an existing statutory licence, registration or authority was replaced with an Australian financial services licence;
  • a qualified Australian financial services licence was replaced with an Australian financial services licence; or
  • an intangible CGT asset was replaced with another intangible CGT asset.

The Australian Securities and Investments Commission is able to extend the transitional period.

E22 Capital gains tax roll-over for replacement small business active assets
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
200 180 170 180 200 210 220 230
Tax expenditure type: Deferral 2012 TES code: E24
Estimate Reliability: Medium — High    
Commencement date: 1997 Expiry date:  
Legislative reference: Subdivision 152-E of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available for capital gains arising from the disposal of active small business assets if the proceeds of the sale are used to purchase other active small business assets. Active assets include assets used in carrying on a business and intangible assets inherently connected with a business (for example, goodwill). An eligible small business is one where the net value of assets that the taxpayer and connected entities own is no more than $6 million, or where the aggregated annual turnover is less than $2 million.

E23 Capital gains tax roll-over for statutory licenses and water entitlements
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Deferral 2012 TES code: E25
Estimate Reliability: Not Applicable * Category 1+
Commencement date: 1985, 2005 and 2006 Expiry date:  
Legislative reference: Subdivisions 124-C (statutory licences) and 124-R (water entitlements) of the Income Tax Assessment Act 1997

A capital gains tax (CGT) roll-over is available where a statutory licence ends and is replaced with a new licence that authorises substantially similar activity to the original licence. In addition, a CGT roll-over is available on an optional basis from the 2005-06 income year where a taxpayer’s ownership of one or more water entitlements ends and the taxpayer receives one or more replacement water entitlements.

A partial CGT roll-over is available for statutory licences (from the 2006-07 income year) and water entitlements (on an optional basis from the 2005-06 income year) where part of the capital proceeds received does not take the form of a replacement statutory licence or water entitlement, as applicable. The component of any capital gains or losses that is referable to the replacement licence or water entitlement is rolled over. Any part of the capital gain or loss from proceeds that do not take the form of a replacement licence or water entitlement does not qualify for the roll-over.

E24 Capital gains tax roll-over for transfer of assets on marriage or relationship breakdown
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Deferral 2012 TES code: E26
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 2006 (expanded 2009) Expiry date:  
Legislative reference: Subdivision 126-A of the Income Tax Assessment Act 1997

An automatic roll-over is available where a capital gains tax asset is transferred to a spouse or former spouse because of a marriage or relationship breakdown.

The roll-over also applies to assets transferred under a binding financial agreement or an arbitral award entered into under the Family Law Act 1975 or similar arrangements under state, territory or foreign legislation.

This also includes roll-over where there is a transfer of a capital gains tax asset from a small superannuation fund to another complying superannuation fund following marriage breakdown, but only where such transfers meet specific conditions.

E25 Capital gains tax roll-over for transfer of Public Sector Superannuation Fund assets to pooled superannuation trust
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
-15 -15 - - - - - -
Tax expenditure type: Deferral 2012 TES code: E27
Estimate Reliability: Medium    
Commencement date: 2005 Expiry date:  
Legislative reference: Item 3 of Schedule 7 to the Superannuation (Consequential Amendments) Act 2005

A capital gains tax (CGT) roll-over was available for the transfer of CGT assets from the Public Sector Superannuation Board to the trustee of a pooled superannuation trust to establish the Public Sector Superannuation Accumulation Plan.

E26 Capital gains tax roll-overs to facilitate the consolidation of Commonwealth Superannuation Schemes
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
-15 -15 -5 -5 -5 -5 -5 -
Tax expenditure type: Deferral 2012 TES code: E28
Estimate Reliability: Medium — High    
Commencement date: 2006 (CSS); 2011 (CSC) Expiry date: 2012 (CSC)
Legislative reference: Superannuation Legislation Amendment (Trustee Board and Other Measures) Act 2006 (CSS); Superannuation Legislation (Consequential Amendments and Transitional Provisions) Act 2011 (CSC CGT roll-over); not yet legislated (CSC loss transfer)

A capital gains tax (CGT) roll-over was available for the transfer of CGT assets from the Commonwealth Superannuation Scheme (CSS) to the Public Sector Superannuation Investments Trust as part of a restructure of the CSS.

A CGT roll-over and loss transfer was available, from 1 July 2011 to 1 July 2012, for the transfer by the Commonwealth Superannuation Corporation of assets and losses from the Military Superannuation Benefits Fund to the Australian Reward Investment Alliance Investments Trust.

E27 Capital gains tax scrip-for-scrip roll-over
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
-90 175 310 -180 * * * *
Tax expenditure type: Deferral 2012 TES code: E29
Estimate Reliability: Low * Category 3+
Commencement date: 1999 Expiry date:  
Legislative reference: Subdivision 124-M of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available for capital gains arising from an exchange of interests in companies or fixed trusts. The roll-over ensures that an equity holder who exchanges original shares or other equity for new equity in a takeover or merger can defer a capital gains tax liability arising from the exchange until the ultimate disposal of the replacement asset. The roll-over ensures that capital gains tax does not impede takeovers and similar arrangements. This tax expenditure is likely to vary considerably depending upon actual takeover and merger activity. Estimates of the magnitude of this item for the projection years are based on the average activity in preceding periods.

E28 Exemption from the market value substitution rule in relation to the cancellation or surrender of interests in widely held entities
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Exemption 2012 TES code: E30
Estimate Reliability: Not Applicable * Category 1+
Commencement date: 2006 Expiry date:  
Legislative reference: Section 116-30 of the Income Tax Assessment Act 1997

The CGT market value substitution rule deems assets that are disposed of for less than their market value to have been disposed for a consideration equal to their market value. This treatment exempts membership interests in widely-held entities that are disposed of by way of a redemption, cancellation or surrender (CGT event C2) of the interest from the market value substitution rule, with effect from the
2006-07 income year.

E29 Philanthropy — capital gains tax exemption for testamentary gifts to deductible gift recipients
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Exemption 2012 TES code: E31
Estimate Reliability: Not Applicable * Category 1+
Commencement date: 1999 (expanded 2005) Expiry date:  
Legislative reference: Subsections 118-60(1) and (1A) of the Income Tax Assessment Act 1997

Testamentary gifts (that is, gifts made under a will) of certain property to deductible gift recipients are exempt from capital gains tax.

E30 Quarantining of capital losses
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Denial of deduction 2012 TES code: E32
Estimate Reliability: Not Applicable * Category 4-
Commencement date: 1985 Expiry date:  
Legislative reference: Section 100-50 of the Income Tax Assessment Act 1997

Capital losses may only be offset against capital gains, which means they are quarantined from ordinary income.

E31 Removal of taxation of certain financial instruments at point of conversion or exchange
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Deferral 2012 TES code: E33
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 2002 Expiry date:  
Legislative reference: Sections 26BB and 70B of the Income Tax Assessment Act 1936

Gains or losses from conversion or exchange of convertible or exchangeable interests issued after 14 May 2002 are not subject to taxation at the point of conversion or exchange, but, instead, taxation is deferred until the ultimate disposal of the shares.

Convertible interests are financial instruments that may convert into shares in the company that issued the convertible interest. Exchangeable interests are instruments that may convert into shares in a company other than the issuer.

E32 Small business capital gains tax 50 per cent reduction
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
610 550 540 590 590 600 600 600
Tax expenditure type: Exemption 2012 TES code: E34
Estimate Reliability: Medium    
Commencement date: 1999 Expiry date:  
Legislative reference: Subdivision 152-C of the Income Tax Assessment Act 1997

Fifty per cent of the capital gains arising from the sale of active assets in an eligible small business is exempt from CGT. This applies in addition to any CGT discount entitlement of the taxpayer. Active assets include assets used in carrying on a business and intangible assets inherently connected with a business (for example, goodwill). An eligible small business is one where the net value of assets that the taxpayer and connected entities own is no more than $6 million, or where the aggregated annual turnover is less than $2 million.

E33 Tax exemption for certain foreign investment in venture capital
Other economic affairs — Other economic affairs, nec ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Exemption 2012 TES code: E35
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 1999 Expiry date:  
Legislative reference: Sections 51-54 and 51-55 and Subdivisions 118-F and 118-G of the Income Tax Assessment Act 1997

Certain non-resident investors are exempt from tax on profits and gains in respect of their eligible venture capital investments.

The concession introduced in 1999 provides an exemption from tax on the disposal of investments in new equity in eligible venture capital investments to non-resident pension funds that are tax exempt in their home jurisdiction (being either Canada, France, Germany, Japan, the United Kingdom, the United States or other approved jurisdictions).

The concession introduced in 2002 provides an exemption from tax on the profits and gains in equity investments made by a venture capital limited partnership to certain non-resident partners in the partnership. The exemption is available to a partner who is a tax exempt resident of Canada, France, Germany, Japan, the United Kingdom, the United States or other approved jurisdictions, a venture capital fund of funds established and maintained in those countries, or a taxable resident of Canada, Finland, France, Germany, Italy, Japan, the Netherlands (excluding the Netherlands Antilles), New Zealand, Norway, Sweden, Taiwan, the United Kingdom, the United States or other approved jurisdictions, that holds less than 10 per cent of the committed capital of a venture capital limited partnership.

In 2007, the venture capital limited partnerships regime was enhanced by:

  • removing a range of restrictions including allowing investment in unit trusts and convertible notes as well as shares;
  • relaxing the requirement that 50 per cent of assets and employees must be in Australia for 12 months after making the investment; and
  • removing restrictions on the country of residence of investors.